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Are you supporting your adult children? Do you know someone who is? It’s a growing phenomenon, yet in many cases it can result in a potentially negative impact on the financial position of the parents. Are children failing to launch because parents are failing to stop bailing them out? Maybe it’s time to administer some tough love. I’ve developed four key ways to smooth the path to financial independence for both parents and their grown children who find it hard to stop drawing on the “bank of Mom and Dad.”
A recent survey by CIBC highlighted this growing phenomenon. For me, it raises some fairly fundamental questions: What are we teaching our children about making good financial decisions? Do we really need the things we think we need? Would you make different financial decisions if you had different information? Or, are we trying to keep up with some artificial picture of what our life is supposed to look like?
Administering some tough love
Given the broad nature of the CIBC survey, you can likely conclude that there are always exceptional situations that occur where some shorter-term financial assistance may be necessary. However, you might also conclude that the goal should be that everyone should be accountable to their own personal situation and should do whatever they need to do to become established and independent from their parents. The really big question is: Are we doing our children a favour by helping them out, or are we doing them a great disservice?
There has been plenty of research on this topic, much of which boils down to one of the great ironies of life: Sometimes when we do less, people find a way to do more. Journalist Malcolm Gladwell talks about this issue in his recent book, David and Goliath. Are our children really better off when they go to the best schools? Are our children really better off when they come from a position of advantage? Or if our children have to learn the hard way, do these life lessons give them the confidence and fortitude to achieve greater results in the future?
I find this conversation to be very interesting because what might seem obvious may often not be the best game plan. It may seem obvious that by helping someone out for the short term, it will help them get on more solid ground in the future. However, if this person feels that to get ahead they continuously need support, they may never develop either the critical thinking to solve their own problems or the confidence and persistence to see things through.
Four key points to consider
Here are some things to consider when working with your children, of any age, as it relates to money:
* List the pros and cons of each course of action:Start with a blank piece of paper, write the issue, option, or goal across the top of the paper, draw a line down the middle making two columns. In the left column, write all of the pros and on the left write all of the cons.
* Something is only as good as to what you compare it to:On another piece of paper, write down all of the different ways a problem can be solved. This is the critical thinking process. It takes time, but is extremely important. Before making any financial decision, it is extremely important to always make comparisons and to figure out options. I have found over my lifetime that the first or most obvious option is very rarely the best option. It is not until you start to do this side-by-side analysis do you then begin to see the pros and cons of various courses of action.
* Every action has a corresponding reaction:If the parent is to support the children, and there is a negative impact to the parent, my advice would be for the parent to discuss this with the adult child. For example, would an adult child make a different decision if they knew in advance that financial support from their parents would be result in their parents being unable to do certain things that are important to them? I have found that in many situations the child did not want to be a burden on their parent, but was unaware of the problems that the parents’ sacrifice was creating. So talk to your children about the ripple effect that financial support will have on your own personal situation.
* Help your children with the long term, but encourage your children to figure it out today:By this I mean, if you wish to support your children, help them invest in an RRSP. You may invest into their RRSP on their behalf, or you may even wish to encourage them to invest by matching any of their annual contributions. This helps your children achieve long-term financial security. This also forces your children to figure out today’s expenses and to live within their means. Alternatively, if you help your children pay for current day-to-day expenses, they may never learn the importance of living within their own means.
One of the great lessons I think I’ve learned in my life is that “struggle” is a key component of the human experience. We all seek a life of ease, yet I’ve learned that a life of ease is usually earned the hard way. Life experience comes with both positive and negative. This to me is the basic reality of life. So when parents continue to shield children from the negatives long after they’ve reached adulthood, then perhaps the parents are taking away the important lessons in life that our children need to learn to survive in this world.
So if you contemplate routine financial support for adult children (that is, paying their bills, buying groceries, paying for their home), consider carefully whether you are reallyhelping them.
Courtesy Fundata Canada Inc. © 2015. Doug Nelson, B.Comm., CFP, CLU, CIM, is President of Winnipeg-based Nelson Financial Consultants. This article is not intended as personalized advice.
